How The Wu-Tang Clan & Martin Shkreli Help Explain Blockchain For The Music Industry, Pt. 3

What happened at the 2017 Grammy Awards shocked the entire music industry. A new independent artist emerged to win three Grammy Awards without the backing of any major record label. His name was Chancelor Jonathan Bennett, better known as Chance The Rapper. At the time Chance was 23 years old, had been nominated for seven Grammys, and ended up winning Best Rap Performance, Best Rap Album, and Best New Artist.

Chance won Best Rap Album for his independently released mixtape Coloring Book, which was also the first time a streaming-only album has ever qualified for a Grammy nomination. All three of Chance’s mixtapes have been released as completely free digital downloads without any record label backing.

When Chance went onstage to accept the award for Best New Artist, it signalled both his arrival to mainstream music fame and the arrival of a new business model for artists to imitate. Chance showed us that another avenue exists for monetising your art, an avenue where he himself took on responsibilities without the need for traditional gatekeepers and middle men. Chance had actually turned down numerous offers from record labels, and ended up proving to the world that it was possible for musicians to take more control of their own business.

In an interview with Vanity Fair, Chance outlined his approach to building a music career:

“After I made my second mixtape and gave it away online, my plan was to sign with a label and figure out my music from there. But after meeting with the three major labels, I realized my strength was being able to offer my best work to people without any limit on it…I make money from touring and selling merchandise, and I honestly believe if you put effort into something and you execute properly, you don’t necessarily have to go through traditional means.”

There are always shifting tides in the way that artists deliver their music to fans and commercialise their work. I predict that the biggest trend we will continue to see here is decentralisation of power within the music industry, as artists decouple from record labels and find other ways to monetise their art. And as this happens inevitably, I think blockchain will be THE technological tool that artists use to build direct relationships and monetise independently.

In 2016, acclaimed artist Frank Ocean was in the process of buying himself out of his contract with Def Jam Records. As a condition of letting him go, Def Jam claimed the distribution rights to his next album Endless.

Frank Ocean’s first step was to release Endless as an avant-garde visual album exclusive to Apple Music. His second step was both masterful and controversial. Literally one day after releasing Endless through Def Jam, Frank Ocean released a completely separate album called Blonde, which he released independently. Def Jam Records therefore lost out on all the revenue from Blonde, which ended up being one of the most critically and commercially successful albums of the year. And because Frank Ocean was not tied to a record label in releasing Blonde, he personally received a significantly higher percentage of revenue.

Boys Don’t Cry, accompanying Frank Ocean’s album Blonde

To accompany the release of Blonde, Frank opened pop-ups shops in New York, London, Chicago and Los Angeles that contained both the album and a glossy magazine titled Boys Don’t Cry. The magazine was a 360-page publication featuring essays, interviews and various artwork in collaboration with a dozen different artists. Frank Ocean had taken complete responsibility for the marketing and promotion of the album, a service generally handled by the record labels. Frank Ocean no longer felt the need to work with a record label in order to sell music, and had proven himself correct.

Years before Frank Ocean and Chance The Rapper’s bold moves towards independence, the band Radiohead took a groundbreaking approach with their 2007 album In Rainbows. Radiohead’s six-album contract with EMI had just ended and the band decided to release their next album independently. They came up with the bold experiment to make their album available as a digital download and tell fans that they could buy the album for whatever price they wanted, including £0. Radiohead hosted the album exclusively on their website www.inrainbows.com, not selling it anywhere else. There was also a second version of the album with extra features in what was called ‘discbox’ format, available through their website at a price of £40.

www.inrainbows.com

The band took control of production, distribution, marketing and even the pricing of their album. In the music value chain, the record label middlemen were taken out of the equation and online music pirates suffered because Radiohead was basically giving their music away for free. In Rainbows was a financial success for the band, winning two Grammy Awards and becoming the #1 album on the charts in many different countries.

In some ways, you could consider this the literal opposite approach compared to the RZA, who created only one copy of The Wu-Tang Clan album and auctioned it off to the highest bidder.

Whether intentional or not, Radiohead had managed to set up a real-life economic experiment exploring game theory. Each person interested in the album could pay literally whatever they wanted. We discussed in Pt. 2 how the relative value of something is different per person, but in Radiohead’s case they could see the relative financial value of their music when each person paid a different price. Some diehard Radiohead fans may have paid hundreds or thousands of pounds, others may have downloaded the album for free, and many people probably existed somewhere in the middle. Radiohead received stronger signals of who was buying their album, which provided them with more data & insight to segment their fans into different groups.

Hypothetical Radiohead Fan Segments

Radiohead’s lead singer Thom Yorke commented in a 2007 interview with Wired magazine,

“In terms of digital income, we’ve made more money out of this record than out of all the other Radiohead albums put together, forever — in terms of anything on the Net. And that’s nuts.It’s partly due to the fact that EMI wasn’t giving us any money for digital sales. All the contracts signed in a certain era have none of that stuff.”

That last sentence about older contracts not factoring in digital sales…It shows that you can’t rely on record labels to keep up to date with the technology that impacts your business as an artist.

The examples above from Chance the Rapper, Frank Ocean, and Radiohead were iterations in original thinking and an artist’s willingness to try something new. What experiments will come next?

Enter The Wu-Tang

“Industry rule number four thousand and eighty,

Record company people are shady.”

A Tribe Called Quest, Check The Rhime.

I believe blockchain technology is the most underleveraged tool for all the different stakeholders in the music business, especially the artists.

Pt. 1 of this article series described how RZA from Wu-Tang Clan released only one copy of their new album Once Upon A Time in Shaolin, howMartin Shkreli became sole owner of that album, and how blockchain technology could be explored to help the music industry. Pt. 2 of this article series examined a conundrum of economics, that each of us values things differently and you can see the extreme version of this in the world of music. With tokenisation, society now has a mechanism to put a truer value on music through crypto tokens tied to the overall market value of an artist.

A consistent underlying theme here is the concept of value. We each value different things differently at different prices. In our society, music & art is where we find the most extreme difference in opinions about relative value.

In 2014, the artist Taylor Swift wrote an Op-Ed piece in the Wall Street Journal outlining her vision for the music industry:

“It’s my opinion that music should not be free, and my prediction is that individuals artists and their labels will someday decide what an album’s price point is. I hope they don’t underestimate themselves or undervalue their art.”

The way I see it, fans view music the way they view their relationships. Some music is just for fun, a passing fling (the ones they dance to at clubs and parties for a month while the song is a huge radio hit, that they will soon forget they ever danced to). Some songs and albums represent seasons of our lives, like relationships that we hold dear in our memories but had their time and place in the past.

However, some artists will be like finding “the one.” We will cherish every album they put out until they retire and we will play their music for our children and grandchildren. As an artist, this is the dream bond we hope to establish with our fans.”

Taylor Swift

Taylor is conveying this idea of relative value, and the blockchain provides us with technology to accurately capture that value. It’s no coincidence that many people refer to blockchain as the impending ‘Internet of Value.’

If RZA were to revisit his intentions behind releasing Once Upon a Time in Shaolin, perhaps now he could approach future Wu-Tang music through blockchain and not through Martin Shkreli. For the other gatekeepers in the music industry such as record labels, let’s explore new ways to approach releasing music that can satisfy the broader music industry ecosystem.

The world moves at the pace of technology and only a handful of individuals and companies are keeping up with that pace by examining the bold frontiers between music and technology. These people are already building a future that more accurately places value on art and puts more power in the hands of artists and their fans.

Let’s examine two ways that artists are trying to build a new future for music:

Traceability & Compensation

Direct-to-Fan Relationships & Tokenisation

Traceability & Compensation

A few blockchain startups have been created to solve problems of traceability & compensation. Both problems are related to the broader idea of fairness in copyright and intellectual property.

The problem of Traceability relates to data — how can data be recorded, used, and monetised fairly? At the end of the day, music itself is raw data that is disseminated online and then into our ears. Attached to that data is metadata outlining the different people who created that music or are associated as contributors. This data is important because it is a record of who owns the right to that music and who should get paid for its usage. If we think of blockchain as a sort of ‘shared, universal spreadsheet to hold the world’s data,’ it is the perfect way for us to trace all important data ownership and attribution.

The music industry infrastructure around rights management is very messy and the process could improve to be more consistent, digital, and immutable. In fact, the music industry has tried coming together in the past to create a universal record in what was called the Global Repertoire Database. Unfortunately, this experiment failed and the project was shut down in 2014. Blockchain’s utility as a universal, shared record of music data can be the novel solution that the music industry has always been searching for.

The problem of Compensation relates to how much an artist is actually being paid for their work. Artists can get paid by record labels, streaming services, royalty organisations and sometimes directly by fans. Each additional stakeholder an artist may have to deal with in order to get paid can make things more complicated. Complexity also exists when a musical composition has a large group of people who have worked together on a song in different capacities and with separate contractual agreements.

Another layer of messiness occurs when people seek licensing agreements, whether someone wants to allow their song to be used by someone else or whether you are seeking approval to use another song for your own project. The internet has brought distribution costs to zero — anyone can take your song, put it up online, and the whole world could soon be listening to it without even paying you.

Even the most successful music technology companies of recent history, such as Spotify, have not solved these problems. Not only is Spotify regularly criticised for paying out artists very low levels of compensation per stream, but many major artists (e.g. Jay-Z, Beyonce, Garth Brooks) have completely boycotted Spotify. The more streamlined we can make these processes, the more easily we can pay artists fairly and quickly.

Music Streaming Costs

A handful of blockchain startups are looking at the dual problems of traceability & compensation and bringing new solutions to the table.

The artist Imogen Heap has a history of being forward thinking in the music industry. She has released most of her music independently and even released her own hardware products, such as the mi.mu gloves that create music out of movement. She was also the first musician to use smart contracts on the blockchain to get paid for her music. Today, she is the founder of a new blockchain startup called Mycelia.

“I dream of a kind of Fair Trade for music environment with a simple one-stop-shop portal to upload my freshly recorded music, verified and stamped, into the world, with the confidence I’m getting the best deal out there, without having to get lawyers involved.”

The name Mycelia comes from a type of fungus that stretches deep underground and all across the world, emblematic of how she hopes that the idea of a shared musical database for artists can be a global solution.

The Mycelia team is about to launch Mycelia’s flagship project called Creative Passport, activating this through a 40-city world tour including interactive exhibitions, talks, and live concerts. Creative Passport is essentially a Digital ID that contains all the specific data and metadata attached to an artist. This is hosted on the blockchain as an immutable, traceable record, a connective tissue for all stakeholders in the music industry. With a decentralised blockchain database, everyone in the music industry can have a creative passport that we can all verify. Mycelia plans to make the Creative Passport free to all music makers and charge a fee for businesses to access the Creative Passport blockchain database for insights and marketing purposes. Those businesses might be streaming services like Spotify or record labels or anyone interested in artist data.

A number of other startups are also tackling challenges within the music industry value chain.

Soundpruf is an application that will allow passionate music fans to better understand their unique listening habits, earn tokens for supporting emerging artists, and provide those artists, the ones who need it most, with an entirely novel revenue channel. The team is also developing a platform that gives fans a chance to invest in artists they believe in through blockchain-enabled security tokens.

“We think blockchain opens a number of hugely exciting doors when it comes to redefining and rewarding what’s valuable in the music world. With a little imagination, smart contracts can enable both fans and artists to transform the meaning and impact of a stream, a full album, a video, a ticket, a concert — ultimately, a career.” — Alex Nordenson, Co-Founder and CEO of Soundpruf

Other projects include Choon, a blockchain company started by British DJ Gareth Emery. The Choon platform will be a streaming service that returns a higher revenue percentage for artists and enables the creation of smart contracts to make royalty payments.

Under the topic of royalties, accounting, and compensation, the company Music Coin has created a free platform for people to listen to music while encouraging fans to tip artists in cryptocurrency. TokenFM employs a similar model where you can pay musicians in cryptocurrency that subsequently helps fund their projects and other artistic experiences.

Napster, circa 1999

As we look forward to the potential within each of these startups to benefit the music industry, it’s worth looking back to the infamous rise of Napster in 1999, the world’s pioneer in peer-to-peer file sharing services. Napster allowed people to download and share music for free, which many record labels and artists considered to be ‘theft.’ Napster was famously sued into oblivion by the music industry establishment, including notable lawsuits from the Recording Industry Association of America (RIAA) and the band Metallica. After reaching 80 million users within a couple of years, the resulting litigation was too much and Napster filed for bankruptcy in 2002.

With the current generation of blockchain startups, we see entrepreneurs aiming to solve the challenge of theft and actually seeking partnerships with artists, streaming platforms, or record labels.

Direct-to-Fan Relationships & Tokenisation

While Traceability & Compensation are clearly problems that need to be addressed, the next topic is less of a problem to solve but rather a new way of thinking. How can artists develop new ways to make money, no matter their level of fame?

Technology has enabled us to connect more easily with people all around the world. Whether you are using Facebook to speak with a family member overseas, arguing with randos on Reddit, or leaving gushing youtube comments for your favorite bands, our ability to live online has made our world smaller. Technology has broken down communication barriers and brought us closer to the people we care about. Why can’t technology bring us even closer to the artists and fans we care about?

Ryan Leslie has always been a multi-faceted music pioneer. As a young boy, Ryan entered Harvard University at the age of 15 and was so focused on pursuing music that his studies suffered and he was put on academic probation several times. After graduation, Ryan worked for many years as a producer with Sean “Diddy” Combs under his label Bad Boy Records and then on his own as a musical artist. His first few albums were released under Universal Motown until he eventually parted ways with the record label in 2010. Afterwards, Ryan started releasing music independently and made efforts to build direct relationships with his fanbase.

Ryan Leslie

His 2013 album Black Mozart was released directly on his own website through his fanclub called Renegades Club. Fans who paid $12.00 for membership to Renegades Club were able to download the album, had their details added to Ryan Leslie’s personal address book, and were encouraged to reach out to Ryan and his team directly. He was creating a new type of digital fan relationship. In addition to building stronger relationships with his fans, Ryan creates unique business opportunities for himself. On his website, Ryan sells merchandise and tickets to special events like his private New Year’s Eve party, described as “An unforgettable 18-hour experience with round trip travel from Frankfurt, Germany to the legendary palace in Vienna, Austria on Ryan’s privately chartered Airbus A319 commercial jet.” Tickets are limited and prices range from around $175 for the cheapest package to around $3500 for the most expensive VIP package.

Ryan Leslie is a great case study of someone who has truly taken a unique approach to engaging directly with his fans. His most recent venture is called Superphone, a sophisticated mobile app for artists to keep in touch with their fans through text messaging.

If you look up Ryan Leslie on twitter, you will find this message on his bio, “Literally always available via email or text: r@mzrt.com or +16467982928.”

Ryan Leslie on Twitter

If you text that number, you will be adding yourself to Ryan’s version of Superphone.

Superphone allows him to manage the tens of thousands of fans who have actually reached out to him through text message. He built the product as a way to make his customer relationship management (CRM) process much more effective. Whenever someone sends that first text, they’re asked to share their information with Ryan. In return, the app provides fans with constant updates about events and album releases while also targeting fans with personalised offers. Through this app, Ryan can filter and build different customer segments. He can create a more sophisticated marketing relationship with his fans through actual data & insight. He is refining some of the most advanced forms of digital marketing and making it personal for his own fans.

Ryan’s goal is to make Superphone the app of choice for any major artist managing their fanbase, which Ryan pursues through his own company Disruptive Multimedia. Legendary Silicon Valley venture capitalist and Hip Hop aficionado Ben Horowitz is an investor.

“Ryan is a genius and is about to transform the music industry and rebalance it in favor of the artists.”

This mobile optimised, digital fan club idea has paid off for Ryan. He has managed to make $2 million in revenue from relationships with roughly 15,000 fans. To draw an analogy with similar businesses in the tech industry, many mobile apps can increase their revenue in two ways.

1) Increase the number of users on your platform, charging each person the same amount.

OR

2) Increase the amount you charge each person on your platform, no matter how many people are on the platform. This is also known as increasing average revenue per user (ARPU).

If Ryan made $2 million from 15000 fans, his average revenue per user (ARPU) or perhaps ‘average revenue per fan’ (ARPF) is about $133. Each Ryan Leslie fan has given roughly $133 in exchange for his merchandise, experiences, or artwork. Ryan doesn’t rely on the indifferent non-fans, but instead doubles down on his superfans.

If we think back to Pt. 2, Ryan is an example of someone who has seen how different fans are willing to pay different amounts and has created a business out of that. Ryan may not have the level of fame as Taylor Swift, but he proves that you don’t necessarily need millions of fans to ‘make it’ in the music industry. You just need enough fans that care about you enough to pay you enough.

To make a million dollars, you could get a million people to pay you one dollar each or get one thousand people to pay you one thousand dollars each. For those wanting to explore this concept further, I highly recommend the essay 1000 True Fans, written by the founding editor of Wired Magazine Kevin Kelly. If we take a step back and take a look at the broader music industry, that second option of increasing ARPF is rarely ever considered. Ryan Leslie is an example of someone who has thought about the world differently.

If Ryan Leslie could offer another one more thing on top of Superphone, I would suggest tokenisation. He could then launch another method to reach his fans directly. As a refresher from Pt. 2, releasing Ryan Leslie crypto tokens could have several benefits:

Ryan can raise funds (fiat or crypto) through an initial coin offering (ICO), giving him a quicker injection of capital to take on different artistic projects.

People across the world wanting to invest in Ryan’s ICO have a new type of relationship with their beloved artist, something that previously didn’t exist.

Both Ryan and his fans/token-holders would benefit financially from any subsequent success from Ryan’s work, as the token value would also increase in price.

Going back to revenue growth strategies, there are two approaches Ryan might consider if he were to release his own token:

1) Increasing the number of people who want to buy Ryan Leslie tokens.

OR

2) Increasing the value of the Ryan Leslie brand, which translates into greater token value for all token owners, no matter how many or how few there are.

Ryan’s focus on option 2 is what he is already doing with Superphone, which translates smoothly into a crypto token strategy. This combined approach of artist tokenisation and increasing revenue per fan rather than number of fans will truly improve the music business.

Sebastian Junger is an author and US Military Veteran who wrote the 2016 book Tribe: On Homecoming and Belonging. Through the lens of anthropology, Junger outlined the powerful human tendency to feel the need to belong to a tribe. He uses examples ranging from Native American tribes to modern day soldiers as examples of ‘tribes’ we are intrinsically programmed to feel attachment to.

If each artist adopts a system of tokenisation and creates their own token, they now have a method to build an even stronger version of their own ‘tribe.’ I think we would all gravitate towards our favourite artists — our heroes — the same way we search for belonging through countries, universities, sports teams, or religions. This tokenisation can work for any group trying to attract other people, starting with music fans. As the saying goes, your vibe attracts your tribe.

Tribal concert behaviour

While Ryan Leslie has been doing his own version of tribe-building without blockchain technology, the electronic music artist Gramatik has embraced blockchain and the idea of tokenisation. Gramatik put together his own ICO in November 2017, launching the cryptocurrency GRMTK and raising $2 million in 24 hours. By owning GRMTK tokens, you actually own rights and royalties to Gramatik’s music proportional to the number of tokens you own. Gramatik has been creating a modern version of his own tribe, enabling his fans to rally around him in the form of a crypto token. Tokenisation is kind of like crowdfunding, but one step further. It’s literally the opposite of record labels owning artists, because artists like Gramatik can share and distribute ‘ownership’ across any number of their fans.

We Need More Venn Diagrams

“I know that people think independence means you do it by yourself, but independence means freedom.” Chance The Rapper, during his Best New Artist Grammy acceptance speech

Building on what Chance is saying, independence means freedom from central authorities and middlemen. The music industry is littered with these people, bloated chains of middlemen that create severe trust issues in terms of access, data, and compensation. It’s no secret that there are challenges within the music industry for both artists and fans.

Legal conflicts in the music industry happen all the time and often read like plot lines to a soap opera. In perhaps one of the most infamous public displays of this, the artist Prince wrote the word ‘SLAVE’ in big bold letters across his face to convey the message that record contracts are like slavery. Think about the outside creativity that is able to flourish when artists aren’t so firmly locked into contracts — like Chance the Rapper, Frank Ocean, or Ryan Leslie.

If we view the decentralisation of power in the music industry as a good thing, we should view blockchain technology as a good thing. To make progress happen, we need more venn diagrams. We need more venn diagrams of musicians and technologists, of left-brains and right-brains, teams and combinations of people who can address society’s problems from their own respective, different backgrounds.

If I were to start my own music career today from scratch, my strategy would be to build a direct-to-fan relationship, underpinned by a foundation of blockchain technology that would allow me to trace my digital copyright and be fairly compensated.

I would immediately ‘tokenise’ myself as an artist and raise funds through an initial coin offering (ICO). My tokens would be available for anyone in the world to purchase, whether you’re a casual fan, superfan, or someone in between. The money raised in the ICO would go towards funding my artistic projects, combining the ideas of patronage, crowdfunding, and being a shareholder. For my fans, these tokens would give you access to special merchandise, affiliate offers, and exclusive access, all proportional to the number of tokens you own. Smart contracts would dynamically pay out royalties based on an immutable shared ledger of my music’s data and metadata. The fans who have invested in my tokens would benefit from token utility and the potentially increasing price of the tokens based on what I accomplish. Fans would develop a stronger relationship with me as a musician and would now have additional financial incentives tied to my own success, making them a new version of a brand ambassador for my art.

What if you, as a fan, could invest in this kind of direct relationship with your favourite artist — Chance the Rapper, Radiohead, Prince, or someone else? Or maybe you could invest in building a direct relationship with a young, unknown artist who you believe in?

If we can combine direct-to-fan/direct-to-artist relationships with blockchain technology, we can build the future of music and art. Music will be a leading indicator of all art forms as the decentralisation of power within creative industries continues. These solutions are within our grasp and it’s just a matter of time before they are brought to market. People like Ryan Leslie, Imogen Heap, and Alex Nordenson are carving new paths in a world that doesn’t yet exist.

Wu-Tang Forever

Once Upon A Time In Shaolin

Look at the picture above this paragraph. It’s the box that was sold to Martin Shrkeli, containing the only copy of the Wu-Tang Clan album Once Upon a Time in Shaolin. When Martin Shkreli opened the box for the first time, only he had access to the music and the data inside.

But now there’s another box that has been opened for the whole world to see — The Pandora’s Box of blockchain technology. The entire range of possibilities available for artists, fans, and entrepreneurs has arrived. Blockchain technology has been unleashed upon the world and I look forward to seeing what comes next.

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